By James Mackenzie
PARIS, Aug 3 (Reuters) - French manufacturing activity continued its gradual move towards recovery in July, according to a purchasing managers survey on Monday which showed the first increase in output and new orders in more than a year.
The Markit/CDAF final manufacturing purchasing managers' index for July reached a 13-month high of 48.1 from 45.9 in June, continuing a steady overall improvement since the start of the year.
Following a severe slowdown in the wake of the financial crisis, the production component in the index climbed to 50.5, the first time since May 2008 it had risen past the 50 mark separating growth from contraction.
New orders were also back in positive territory, again for the first time since May 2008.
Markit said anecdotal evidence suggested the growth in new business was supported by client restocking and the launch of new products but it cautioned that companies still faced a very difficult environment.
"The French manufacturing sector continued to benefit from stabilising demand and inventory cycle effects in July," said Jack Kennedy, Economist at Markit.
"Production levels are likely to receive support in the coming months as stocks continue to be cut at an historically sharp rate -- the orders to inventories ratio currently stands at a three-year high," he said.
"However, underlying conditions remain difficult as firms face pressure to cut output prices and reduce staffing levels." Manufacturers continued to bring down stocks of purchases, while lead times from suppliers rose for the second month in succession. Both input prices and output prices declined, the survey showed.
Industrial output data for May released earlier this month showed a surprise jump of 2.6 percent which was largely put down to companies replenishing exhausted stocks and to a surge in car production fuelled by government incentive schemes.
The euro zone's second largest economy is expected to contract by about 3 percent in 2009 but there have been growing signs that the severe downturn seen since the end of last year has begun to stabilise.
Even so, jobless numbers have continued to rise steadily as companies have cut headcounts and held off from replacing departing staff and the July PMI survey showed the employment component of the index in negative territory for the 15th month in succession. (Editing by Andy Bruce)